I written elsewhere why you shouldn’t be overly worried about losing your house or cars to the IRS for back taxes. On the other hand, you SHOULD be very worried about the IRS freezing your bank accounts and seizing payments from contracts owed to you.
What are your Legal Rights to Protect you From an IRS Levy?
If you’ve ignored IRS letters and notices, and particularly, the IRS Notice of Intent to Levy, then you’re a good candidate for accounts to be frozen.
But what should be your response? Well, you do have legal rights spelled out in the Notice of Intent to Levy. You can file an appeal for example. That type of appeal is usually called the Collections Due Process hearing. That will give you the opportunity to submit your case to an IRS Settlement Officer who has not previously been involved with your case. You will be provided an opportunity to discuss options that you may wish to pursue, such as an Installment Agreement, Currently Not Collectible, or an Offer in Compromise.
While you are waiting for the Collections Due Process hearing, all IRS collections efforts are suspended.
What if You Ignore the Notice of Intent to Levy? A Case History
Unfortunately, I recently got a call from a new client (Joe) who complained about having all of his bank accounts frozen. He was a subcontractor for a variety of law firms who had engaged his services for a number of years. Joe had fallen behind on his IRS taxes, and he had been scared of all of the IRS envelopes he had been receiving. Unfortunately, he had ignored the Notice of Intent to Levy (Form LT11) and the IRS had not only levied on his primary personal bank account but also his business bank account. Worse, the IRS had sent letters to each law firm with whom he had done work over the years, and instructed the law firms that they were in no way to pay the client for any services. Instead, they were to pay his fees to the IRS.
Needless to say, Joe got urgent phone calls from each law firm. They all said that they liked him personally and they liked his work, but that until he straightened out his tax situation, they simply didn’t want to hire him to perform work.
So, what were Joe’s options? I contacted the IRS Automated Collections Service and learned that he had one unfiled return. They would not agree to lift the levies, however my office prepared the delinquent return and about 36 hours later, we faxed the return to the IRS along with an Installment Agreement request. Voila, within less than 2 full days, the IRS released the levies, and we gave fax numbers to each law office and bank that Joe had in order fo the IRS to instruct each entity to disregard the Levy Notices. Joe was able to regain his self-employment and get back to where he had been.